Using Credit Cards to Raise Financially-Responsible Teens

Many parents think that the only way to raise a financially-responsible adult is to teach them the dangers of credit cards while they are teenagers. While this may be one method for raising teens who spend their money wisely, many parents want to teach their kids how to use credit wisely as well. The good news is that Congress is now on board and wants to help you teach your teenagers how to be conscious about the money they spend.

One of the new regulations in the new guidelines which go into effect on February 22 is a way to curb the number of teenagers getting a credit card as soon as they turn 18. Anyone under the age of 21 who wants to get a credit card after February 22 will need to have a way to pay their monthly bills. If they do not have an independent source of income, they will need their parent to cosign on the card for them.

This seems like a great idea You probably won’t see any more tables set up on college campuses with people giving away tshirts simply for applying for a credit card. You won’t see unsuspecting freshmen signing their life away for a chance at some “free” money. And the new regulation gives parents a way to teach their young adults about the importance of building a good credit history and spending their money wisely. There are other ways to teach them how to be financially responsible without just letting them sign up for every credit card that comes along.

1. Debit Cards
Many parents give their college-aged kids a debit card to use while they are away at college. The students know they can only spend so much or else they will be responsible for overdraft fees. These days, overdraft fees can be upwards of $35 depending on which bank you use. Kids find out quickly about the dangers of spending more than they can afford.

2. Monitored Credit Cards
One of the best ways to build a credit history is to start young. Some parents start as early as the age of 16 by giving their son or daughter a credit card. One parent – Kathy Stepp of Overland Park, Kansas – gave her daughter a credit card at an early age but she monitors all of her spending and makes her daughter keep a record of what she has charged. However, this approach has its disadvantages, too. For instance, some banks do not allow you to remove someone from the account unless both parties agree to it in writing. You could be responsible for some hefty charges if your teen decides they want to buy a bunch of stuff on your account.

3. The Hybrid Method
This is often the most successful method when teaching your teens about money. It involves making them authorized users on your account so they can begin building a credit history. Tell them they can only use the card for emergencies. Some card companies even allow you to put a cap on spending for authorized users so you do not have to worry about them going overboard. Also, make sure they have a written budget and allow them to open a checking account that you have access to. Lay down some ground rules so they know what is expected of them when it comes to using the card.